The strong growth in employment over the past decade and a half has contributed to
a significant fall in the unemployment rate. However, it has also been associated
with an increase in labour supply from several other sources. This box discusses
both the role of increasing labour force participation by people who were not
previously in the labour force and the increasing role of migrants in the growth
in employment.

Increased labour force participation by residents

Between 1992 and 2006, the proportion of the civilian population aged between 15
and 69 years in employment increased from 62.7 per cent to 70.6 per cent. This
significant growth in employment was associated with large changes in the labour
market status of different groups (Table
B1). Most prominently, the proportion of the working-age population
that was unemployed fell from 7.5 per cent to 3.6 per cent.[1]
But the growth in employment was also associated with a large decline in the
proportion of the working-age population classified as not being in the labour
force.

Among people classified as not in the labour force, the largest group is those who
do not want to work, for example because they are retired or care full-time
for their families. This group has also accounted for the majority of the increase
in labour force participation during the current economic expansion. The largest
single contributor has been the trend increase in female labour force participation
(Graph B1). With respect to age groups, there has been a noteworthy increase
in the participation of those aged between 45 and 64 years. Given that people
aged between 55 and 64 years have a lower participation rate than the rest
of the working-age population, the increase in the share of the population
in this age group – primarily the first wave of the baby boomer generation
who are nearing traditional retirement age – could have been expected
to increase the share of the population who do not want to work. However, since
the participation rate of these older workers has increased markedly in recent
years, this age group has in fact been a declining share of persons who do
not want to work.

A second group of persons, who are outside the conventionally defined labour force
but more readily available for employment, are known as ‘persons with
marginal attachment to the labour force’. This group includes people
who are willing to work, but are either not actively looking for work or are
not available for work immediately. The share of this group in the population
was roughly stable at around 7 per cent for most of the 1980s and 1990s, as
a trend decline amongst females offset a trend increase amongst males. Since
the late 1990s, however, the size of this group has fallen significantly.

The two predominant explanations people in this marginally attached group give for
not actively looking for work are ‘personal reasons’ (especially
education) and ‘family reasons’ (most commonly caring for children).
The proportion of people giving each of these explanations has fallen in recent
years (Graph B2). The recent decline has been more pronounced for women, some of
whom may have benefited from the trend towards greater flexibility in working
arrangements that has helped address the family-related reasons that were keeping
women out of the labour force.

Another category within the ‘marginally attached’ is the group who would
be available to work but have given up looking for employment. The number of
‘discouraged jobseekers’ in the labour force has fallen significantly
over the current expansion, and now constitutes only 0.4 per cent of the working-age
population, or around 50,000 persons.

Increased labour force participation by migrants

Another source of potential labour supply, which has received much attention recently,
is migration. Available evidence suggests that the number of migrant arrivals,
especially those on Skill Stream visas, has increased over the past six years
(Graph B3).[2]
While immigration contributes to aggregate demand in the economy and hence
to demand for labour, an issue not specifically addressed here, immigrants
also represent an additional source of labour supply.[3]

Unpublished data from the ABS Labour Force Survey (LFS) provide some evidence on
the contribution of recently arrived migrants to the Australian labour market.
These data suggest that since 2000 there has been a 45 per cent increase in
annual migrant arrivals, and also a significant increase in the proportion
of recent migrants who find employment. In recent years, the annual flow of
migrant arrivals into employment has been equivalent to around one-third of
the annual increase in aggregate employment.

The labour force participation rate and the unemployment rate can give a rough indication
of the interaction of migrants with the labour market. In order to account
for the time it takes for recent migrants to settle, Graph B4 shows the employment characteristics of migrants in the December
quarter in the year after they arrived. On this basis, the participation rate
of recent migrants has gradually increased over the past few years, so that
the participation rate for those who arrived during 2005 was virtually equal
to the economy-wide rate by the end of 2006.

Traditionally, recent migrants have had higher unemployment rates than the population
as a whole. However, over the past two years the unemployment rate of recent
migrants has declined at a somewhat faster rate than for the population as
a whole, so that their unemployment rate is now closer to the economy-wide
rate within two years of the migrants arriving in Australia.

The stronger labour market experience of recent migrants compared with those who
arrived earlier in the decade is likely to reflect both demand and supply factors.
As a result of the increase in the Skill Stream visa category, recent migrants
may have skills better matched to the Australian labour market. But the strength
of the domestic labour market has also provided migrants with better employment
opportunities. Reflecting the resources boom, Western Australia has had the
tightest labour market in Australia, with high employment growth and shortages
of skilled workers. It is perhaps not surprising that Western Australia received
a disproportionately large share of migrant arrivals in 2006 compared with
the other Australian states, and that the participation and employment rates
for migrants in Western Australia have been stronger than for migrants settling
in other states (see ‘Box A:
Regional Economic Performance’ for state-level immigration data).

Footnotes

This proportion of unemployed persons is measured in terms of the total population
aged 15 to 69 whereas the standard unemployment rate is measured in terms
of the labour force aged 15 and over.
[1]

The data in the two panels of the graph are not strictly comparable for several reasons,
although the trends are broadly similar. The data on visas granted do not
include migrants from New Zealand, the humanitarian program or temporary
visas. The LFS data include migrants aged 15 years and over who are staying
in Australia for more than 12 months in total. Therefore, the LFS data would
include many migrants on Temporary Business (Long Stay) visas (subclass 457)
which allow migrants to reside in Australia for up to four years. The main
groups excluded from the LFS data and the analysis here are working holiday
makers (subclass 417 visas) and business visitors.
[2]

For further analysis, see Productivity Commission,
Economic Impacts of Migration and Population
Growth, Final Report, April 2006.
[3]